Understanding Taxation Law: Income, Deductions, and Taxable Receipts in Employment

Running head: TAXATION LAW
Taxation Law
Name of the Student
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1TAXATION LAW
Table of Contents
Part A:........................................................................................................................................2
Part B:.........................................................................................................................................8
Facts of the Case:...................................................................................................................8
Decision and main principles:................................................................................................8
Relevance of case today and likely decision on similar facts:...............................................9
References:...............................................................................................................................10

2TAXATION LAW
Part A:
A receipt obtained from the employment and offering personal services will be
subjected to income tax for the employee. A relation or nexus with the receipts as the
outcome of taxpayer’s personal service is regarded as ordinary income. Ordinary income is
regarded as income based on the ordinary concepts and taxable under “section 6-5, ITAA
1997”. In “Scott v CT (1935)” income should be determined on the basis of ordinary
concepts and use of mankind (Grange et al., 2014). The gross cash salary of $50,000 is an
income from employment for offering personal service which will be subjected to taxation
under the ordinary concepts of “section 6-5, ITAA 1997”.
As per “taxation ruling TR 98/1” any income obtained from employment will be
subject to taxation based on receipts basis irrespective of whether such income relates to
future or past earnings (Deutsch, 2018). For instance, unanticipated or voluntary payments
that is received as the incidence of employment is regarded as ordinary income. In “Laidler v
Perry (1965)” the court held that Christmas bonus paid to employees as the redeemable gift
voucher was treated as income. The performance bonus received by Jane is the incidence of
employment and hence taxable as ordinary income under “section 6-5, ITAA 1997”. The
clothing allowance received from Milton Hotels by Jane is included for assessment as
ordinary taxable income.
When a taxpayer incurs expenses on the ordinary items of apparel namely formal suits
they are not allowed for deduction under “section 8-1”. As held in “Mansfield v FCT
(1996)” a deduction was denied to the taxpayer for expense on ordinary articles of apparel,
irrespective that such expenses is necessary to make sure that good appearance is maintained
in job (Barkoczy, 2014). Jane makes an expense of $7,500 on jewellery and office formal

3TAXATION LAW
wear. No deduction is allowed to Jane under “section 8-1, ITAA 1997” because they are
ordinary items of apparel which is not related to work.
In “Moore v Griffiths (1972)” mere wining of prize was not an income. However,
prize may be treated as income on noting that a sufficient nexus is present with the income
earning activities of the taxpayer. In “Kelly v FCT (1985)” the receipt of award by the
professional footballer for being the best player was an income (Eliot, 2016). The amount
held nexus with the work and employment with the club. The receipt of award by Jane for
being the best financial controller in Australia should be considered as income because it is
related to her employment and work. She also received an HP computer that worth $2,550.
As held in “Cooke and Sherden v FCT (1980)” gains which is non-convertible to cash or
worth of money was not regarded as income (Edward, 2013). Nevertheless, the HP computer
received by Jane held the market value of $2,550 which can be converted into money’s
worth. With application of “section 26 (e)”, the HP computer received as an award will be
treated as ordinary income and the same is included for assessment.
As per the “section 23L ITAA 1936” if the employer provides the employee with the
fringe benefit then in such case the benefit will be considered as non-assessable income for
the employee and a fringe benefit tax will be imposed on the employer on the value of benefit
(Jover-Ledesma, 2014). The membership fees of $1,250 paid by Milton Hotel is non-
assessable benefit for Jane under “section 23L of ITAA 1936” while her employer will be
subject to fringe benefit tax on the value of benefit.
According to the ATO the taxpayers are allowed to claim a permissible deduction for
the expenses occurred on the conference, seminars and workshop which is associated to
work. The personal portion of the expenses are excluded from the deduction. Jane while
attending a conference can claim the cost of registration, air fares for her part and